Page last updated at 12:04 GMT, Tuesday, 24 March 2009

City Diaries: 23 March 2009

Man looking at a falling graph

Our City Diaries are written by people who work in finance and have had a front row seat as their industry goes through the biggest changes in decades.

They give us regular insiders' updates on the mood in the City of London and the dramatic changes in the world of finance.

In this instalment, the City diarists discuss whether recent market trends could mean that the economy is beginning to recover.

MARK

Mark currently works for a stockbroker outside London.

The Apprentice is due to hit our screens again for the start of a new series. I do wonder if any BBC executive thought of getting the likes of Adam Applegarth and Fred Goodwin (I now refuse to call him "Sir") on the show?

It would have been fantastic viewing, watching the men who were the leaders of massive financial organisations and seeing if they could run a cleaning company, for example.

Perhaps this should be part of the interview process of senior positions in the financial services sector in the future, lets face it, it would not do worse than we currently have! I would love to see Fred or Adam get the "You're fired!" statement from Sir Alan.

Markets have moved in an upward motion in the last few days and the question is whether this is a false start or the beginning of a recovery. Ben Bernanke, chairman of the US Federal Reserve, this week commented that he could see the first green shoots of recovery and that the US may begin to get out of trouble towards the end of this year.

Now while many are regarding that as simply too optimistic, the US will, inevitably, recover first. As they always say, the US sneezes, the world catches a cold.

Trader looking at numbers on a board
On that basis, it takes less time to get over a sneeze compared to a cold. So will the UK begin to see a recovery? Well, more learned people than I got the crash wrong so I hesitate to answer the question.

What I would say is that a glimmer of confidence is beginning to return. It is not much and if they get their property valued, look at their share portfolio or read a pension statement, it will evaporate very quickly, but people are looking at long term recovery.

The job losses, which were almost non-stop news articles on business websites, have been replaced by more mundane topics such as Ofcom investigating mis-selling.

The mood in the office, my office and probably any office, is that the worst might be over. Yes, there will be further job losses in the financial services sector but possibly, they are not as close to home as previously.

Many people are now focussing on the tax year end and the 'ISA season'. Just as retailers pay homage to the Christmas period, stockbrokers, fundsupermarkets, fund managers and banks, look to the ISA season and the barrage of £7,200 cheques that (we hope) head through the door.

The two events come close together and for many, heads will be down working hard. There is just a hope that when you raise your head at the end of it all, you are still in an office and not staring at a wall in your home with no job to go to.


LAURA

Laura (not her real name) works for a commercial bank in London.

To be honest, we're all getting pretty bored with the negative coverage of the banking sector now.

The people who have any influence on the sector probably number about 50, so burying the rest of us in a deluge of ever changing reporting, analysis and form ticking is nothing but soul destroying white noise.

If the LIBOR rate is rendering your income sheet a page of red numbers what is the point? If a bounced cheque renders an entire facility immediately in the ‘bad debt provision’ sin bin what scope have we got to help clients through the recession?

To be honest, we're all getting pretty bored with the negative coverage of the sector.

With all the pundits and Government talk of ‘getting banks lending again’ the response from the office goes something like "your initiatives are for your own benefit not ours, so just shut up and let us get on with it".

The number of enquiries we are having is up on this time last year as companies contact us with the opening line of "I heard from someone you are still open for business, can we move our banking?"

The reality is the hurdles to pass as a ‘good lending prospect’ are much higher to the point where you virtually have to need no borrowing to be offered any. The quick among you might realise that this is perverse but, on the flip side, there are a bunch of companies borrowing relatively cheap money to wipe out weaker rivals through acquisition or investment.

This may be below the radar of the shrinking private equity market but the rise of the venture capitalist has begun.

Much larger companies who have been with their ‘big four’ bank for decades are now starting to question not only will their bank still be willing when they need to renew their facilities but also if their shareholders will think less of them being funded by a financially incompetent finance company.

To add insult to injury, many banks are now taking an equity stake in exchange for cash to put off return until the boom times come back, and to justify lending to ‘weaker’ companies.

It might seem reasonable to give the Bank a 10% equity stake option at this point, but if they choose to invoke it in 5 years time after you have slogged your guts out to improve your business, many directors may be handing over much more than they realised.

The cardinal rule of business lending by FSA regulated banks used to be ‘we are not equity lenders’ and this reverse trend is something to watch as the next potential ‘big thing’ in banking.

Whether this will be a positive change remains to be seen.



Your comments

I am a City stockbroker who still has a job! The old adage that the City is far more glamorous from the outside than it is on the inside always felt right, now I know it's right. In at your desk before 7am, hard graft, high levels of job insecurity, high levels of staff turnover and generally poor levels of man management are a strange combination. When the bonus structure drives short term performance, rather than long term development of a quality franchise, we stockbrokers are due a serious bout of financial pain. Further restructuring and job losses are bound to follow for the UK stockbroking industry. My bet is that many things are heading back to where they were in 'the good old days' - including the ownership and structure of strockbroking firms. There will be more partnership based firms with low staff turnover, strong balance sheets, loyalty and higher quality business. Heaven forbid, we may also have a regulator that effectively regulates too. You might not agree, but the UK really needs strong stockbroking firms where the right people get a fair amount of money for executing high quality profitable business with manageable levels of risk for both client and firm.
Luke, London

I don't see what Stephen's point was in last week's diary. The transmission mechanism has weakened owing to weak banks and people have increased their propensity to hold on to money - using monetary terminology the velocity of circulation has reduced dramatically. The bank therefore is using quantitative easing to increase supply of money where stimulating demand does not work. This is not Keynesianism - it is a monetary solution to what is perceived correctly as a monetary problem. I don't see how policy could be any different shy of the crass VAT cut (which was Keynesian) use of monetary stimuli is essential to get out of this mess which was created by poorly run banks which were poorly regulated.
Chris, London

I read the following quote earlier today and it made me smile, albeit ironically. “It has made debt a national habit; it has made credit the ruling power, not the exceptional auxiliary, of all transactions; it has introduced a loose, inexact, haphazard, and dishonest spirit in the conduct of both public and private life; a spirit dazzling and yet dastardly; reckless of consequences and yet shrinking from responsibility”. The writer is Benjamin Disraeli in Sybil describing the impact of William of Orange’s introduction of Dutch finance methods when he joined the British monarchy. The more things change, the more they remain the same ...?
Zoe Smith, High Wycombe

All I can say, having worked in a commercial bank and also in investment banking is that not all bankers are the bad guys. This big mess we (the public) like to blame on the bankers is due to slack regulating by the FSA who are paid to regulate the industry. I see only the slightest of blame being put on them - although they let all these absurd financial products slip through the net. However, for their part in helping see the banks through this recession, they are still getting their bonuses this year.
Alice H, Bristol

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